Unnecessary account opening Vanguard

In an instant

  • A 529 college savings plan can help you reach your education savings goals.
  • A UGMA / UTMA is a taxable account that you can open for a minor.
  • A taxable account, such as an individual or a joint account, can help you save for other goals such as buying a home, buying a car or vacation.

You’ve heard a lot about saving for retirement these days, but it’s probably not your only investment goal. With proper planning, it is possible to save for multiple purposes.

Before you open a nonretirement account, define your goals (s). Then consider your options. To help, we’ve added some general investment goals to account options.

Goal: Savings for college

When it comes to saving for college, you have many options. However, for most people, a 529 college savings plan offers a mix of benefits that can help them reach their goals.

States typically sponsor 529 plans, but you can invest No State plan. And you can pay your saved money for school at any qualified educational institution in the United States and abroad.
Find a 529 plan

You can use the 529 plan to save for a beneficiary -a child, another adult or even college for yourself. This type of account gives you many tax benefits to help you save for educational expenses.

  • You can contribute to your state tax return (depending on your state’s rules).
  • Your investment is tax-free, so you will not pay any tax on your earnings until you withdraw the money.
  • Withdrawals of contributions and earnings used for eligible education expenses are not subject to federal taxes and are generally not subject to state taxes.
  • The contribution limit is high, and you can make a valuable 5-year contribution at once without triggering the federal gift tax.

If you save on a 529 plan and don’t need money to spend on education, you can give it to a qualified family member without penalty. Or you can simply withdraw money – just remember that if you use the money for expenses that do not take into account the cost of education, you will have to pay taxes and fines. Penalties only apply to your earnings, not contributions. *

More info
Learn more about the 529 plan
College savings option

Goal: Savings for minors
If you save on behalf of the child, you can open an account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA).

Anyone can open or contribute to UGMA or UTMA, but the minor is legally the owner of each contribution (marked as a gift) in the account, and you cannot change the beneficiary for it No Because you can use a UGMA or UTMA to save for any purpose (excluding parental obligations such as food, clothing and shelter).

Account owner’s considerations
UGMA and UTMA are custody accounts, which means the owner of the account acts as the custodian of the assets in the account until the minor becomes an adult. You can contribute as much as you want, but can charge up to 15 15,000 per year ($ 30,000 for a jointly filed married couple) federal gift tax. In addition, contributions are not tax-deductible and earnings are subject to federal income or capital gains tax.

Beneficiary consideration
Beneficiaries may use educational or otherwise resources for any purpose after reaching the age of majority. If the beneficiary does not use the resources for the college, there is no penalty.

UGMA and UTMA weigh heavily in the calculation of federal financial aid because the account belongs to the technically beneficiary. This can significantly affect the weight support decision.

The goal: to save for everything else
If you save for rainy days or big expenses – a house, a car, a vacation – you can open a separate investment account or a joint account.

If you have a separate account, you are the sole owner of the account. If you open a shared account, you share ownership of the account with one or more adults.

Interested in an account type we didn’t mention?
Learn about the type of account we provide

Want a financial advisor to help you make investment decisions?
Learn about Vanguard’s personal advisory services

Earn investment tax
Private and joint accounts are taxable accounts, which means they do not provide any tax benefits. All contributions are tax-deductible (meaning you pay income tax on the money you invest), and the year you receive investments such as dividends and capital gains.

Dividends are an income payment of an investor. If you own a stock, bond, mutual fund or ETF (exchange-traded fund), you can get a dividend that generates income.

If your mutual fund or ETF sells an investment worth more than the original investment, you can get a capital gain distribution, which represents the return on an investment. If you sell your own investment shares (stocks, bonds, mutual funds or ETFs) at a higher price than the original price, you can also get a capital gain distribution.

More info
Personal and joint accounts
Capital gain

It’s time to go
Here are some tips to make the process easier:

Whatever you need

  • About 10 minutes.
  • Your bank account number and your bank’s routing number (if you transfer money electronically).
  • Name and address of your current employer (if you are employed).

You have to decide

  • The type of account you want to open.
  • How you will finance your new account (electronic bank transfer, check, or you can add money later).
  • What you want to do with your dividends and capital gains (you can always change your choice later).

Dividends and reinvest capital gains: yes or no?
If you receive dividends or capital in UGMA, UTMA, personal or joint accounts, they will be subject to annual income tax, whether you reinvest them or not.

If you reinvest dividends and capital gains into your account, they can make their own earnings – a principle called compounding.

If you transfer your dividends or capital gains to a money market settlement fund, you can easily withdraw them for immediate use (but you will miss the compounding).

What are you expecting?

  • We will review the information you provide and open your account.
  • Initially we will automatically manage the money you invest in a settlement fund – a money market mutual fund that is used to make and receive payments from brokerage transactions. Once we have credited your initial investment to your account, you can transfer some (or all) of your money to another investment.
  • You can sign up for web access to manage your account online.

More info
Open a new account
What is Money Market Settlement Fund?

* If you receive a tax deduction on your contribution, your state may refund you if you use the money for unpaid expenses. Some states also adjust the arrears for inflation.


For more information on any 529 savings plan, contact the plan provider to get a program description that includes investment objectives, risks, charges, expenses and other information; Read and consider carefully before investing. If you are not a taxpayer in the state, consider before investing whether you or the nominee beneficiary’s own state pays any state taxes or other benefits that are only available for investment in such state-eligible tuition programs. Other state benefits may include financial aid, scholarship funds and protection from creditors. Vanguard Marketing Corporation serves as distributor and underwriter for about 529 plans.

Counseling services are provided by Vanguard Advisors, Inc., a registered investment advisor, or Vanguard National Trust Company, a federally chartered, limited purpose trust company.

The services provided by clients selected for ongoing consultation will vary depending on the amount of resources in the portfolio. Review the form CRS and the Vanguard Personal Advisor Service brochure for important information about the service, including its asset-based service levels and fee breakpoints.

All investments are at risk, including the potential loss of money you invest.

We recommend that you consult with a qualified tax advisor about your personal situation.

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